In the SBI repo linked lending rate (RLLR), the home loan interest will change upwards or downwards depending on the movement in the repo rate as set and declared by the RBI.
SBI RLLR linked home loan: The State Bank of India (SBI) is the first bank to introduce a home loan with interest rates linked to an external benchmark of RBI’s repo rate. Presently, effective from September 1, 2019, the SBI repo linked lending rate (RLLR) is 7.65 per cent. The effective RLLR linked home loan, however, will depend on the loan amount, loan-to-value of the loan and the risk group of the borrower. For loan up to Rs 75 lakh, the home loan interest rate will vary between 8.05 per cent and 8.20 per cent, depending on the risk group. If you already have a home loan with some other bank or home loan finance company, you may shift to SBI RLLR linked home loan.
In the SBI repo linked lending rate (RLLR), the home loan interest will change upwards or downwards depending on the movement in the repo rate as set and declared by the RBI. The transmission of the RBI rate cuts or rate hike will, therefore, be much faster in the case of SBI RLLR as compared to the base rate or Marginal Cost of Funds based Lending Rate (MCLR) linked loans. Since April 2016, banks are allowed to provide only MCLR-linked loans, while RLLR home loan is a much recent practice.
RBI revises the repo rate on a bi-monthly basis sometime in the first week of the month. SBI RLLR will, therefore, get revised on the 1st of the following month. For example, if the RBI’s repo rate is 5.4 per cent and is cut to 5 per cent, the RLLR will get reduced by 40 basis points as well. The rate will get revised upwards if there is a hike in repo rate. Repo rate is the rate at which banks borrow from the RBI.
SBI RLLR Eligibility
Anyone with a minimum gross annual income of Rs 6 lakh and is between the age of 18 and 70 years can apply for SBI RLLR loan. However, as per the SBI website, the maximum home loan amount will be the lowest of the following:
- Maximum permissible loan-to-value (LTV) Ratio which could be 80 per cent or 90 per cent of the home price.
- SBI will consider the Debt Service Coverage Ratio (DSCR ) of a minimum of 1.25 (inclusive of EMIs of the proposed Home Loan). This means not only your income but also existing debt matters. Higher DSCR can make you eligible for a higher loan amount.
- Loan amount actually applied for.
The maximum loan tenure is 33 years over and above maximum moratorium permitted of 2 years for under construction properties. So, the total loan tenor in such cases cannot exceed 35 years.
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How does SBI RLLR work
Based on the borrower’s eligibility, once the loan amount is arrived at by the bank, in a RLLR loan, there will be two payments to be made separately. One, for the principal repayment and the other for interest payment. The principal loan amount is divided by the tenure to arrive at the equated monthly principal (EMP) and will remain the same throughout the term. Unlike other loans, in SBI RLLR, the monthly installments are not equated or same. So, instead of EMI, there is a concept of EMP in RLLR loans. In RLLR home loan, interest payments will vary each month, in fact, it will be highest in the first month and then will keep falling.
While interest is to be serviced monthly as and when applied to the account, a minimum 3 per cent of the principal loan amount should be repaid every year in equated monthly instalments subject to liquidation of loan before borrower attains 70 years. In other words, while the interest payments will keep coming down each month, the principal repayments will be higher in the initial years of the loan but will remain constant. The interest charges will be based on daily reducing balance.
Fees and other expenses
As per the SBI website, currently, the processing fee of SBI RLLR home loan is 0.35 per cent of the loan amount plus taxes, subject to a minimum of Rs. 2,000 plus tax and a maximum of Rs. 10,000 plus tax. The charges for obtaining valuation Report or CERSAI Registration, etc. will have to be paid separately. Further, similar to non-RLLR home loans, there will be pre-sanction fee as well such as advocate’s fee for property search and title investigation report and valuer’s fee for valuation report. Further, the borrower will have to bear the post-sanction charges such as stamp duty payable for loan agreement and mortgage and property insurance premium.
In RLLR home loan, the transmission is quicker than compared to MCLR loans in which the reset period is generally 12 months. In times when the interest rate is on the downward trend, RLLR home loan suits while it may hurt the borrowers in rising interest rate scenarios. Further, the monthly payments in RLLR loans are higher in the initial few years compared to MCLR loans where it is fixed till the end of tenure. Choose to opt for RLLR loans keeping these factors in mind.